Aerospace & Defense

Goldman Sachs Has 3 Top Aerospace and Defense Stocks to Buy Before Earnings

It doesn’t take a genius to realize that airline traffic has slowed to a trickle, and that’s tough for pure-play aerospace stocks. However, the U.S. Department of Defense budget outlays remain very strong, and investors looking to shift assets from the heated technology sector may want to consider this sector now.

In a new report, the aerospace and defense analysts at Goldman Sachs make the case that the quarter could be very strong for some of the top stocks in the sector, and three companies are top picks going into second-quarter earnings results. While all there are rated Buy at the firm, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Boeing

This company has had a public relations nightmare due to the 737 Max issues. Boeing Co. (NYSE: BA) is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined. It is also one of the most valuable brands in the world.

The different segments in the company are Commercial Airplanes, Boeing Defense, Space & Security and Boeing Capital. The latter provides financial solutions facilitating sale and delivery of Boeing commercial and military aircraft, satellites and launch vehicles.

In 2018, Boeing and Embraer signed a nonbinding memorandum of understanding to create a new strategic partnership for commercial aviation. The new joint venture is valued at $4.75 billion, which values Boeing’s 80% share at $3.8 billion.

The Goldman Sachs team still has Boeing as a top pick into earnings, and they noted this in the research report:

Investor expectations remain low. Second quarter free cash use is likely high, but we expect Boeing to be able to say that is the peak usage. Production rate revisions versus last update are possible, but likely minor and anticipated by investors. We expect guidance to remain suspended, but that Boeing will provide an update on key inputs including the MAX recertification timeline, customer conversations regarding orders and timing of deliveries, and liquidity. While the macro environment is still highly uncertain, we believe Boeing will be able to communicate greater visibility and confidence in all three of these key matters. Recertification test flights have begun, customers have had more time to make near and long-term fleet planning decisions, and Boeing secured $25bn of additional liquidity with the May bond issuance.

The Goldman Sachs price objective for the shares $238, and the Wall Street consensus target price is $177.80. Boeing stock closed Thursday at $178.70 a share. The company is slated to report second-quarter results on July 29.

General Dynamics

This company, like other major defense prime contractors, has had a solid year, and the balance of 2020 looks to be solid as well. General Dynamics Corp. (NYSE: GD) is engaged in business aviation, land and expeditionary combat vehicles and systems, armaments, munitions, shipbuilding and marine systems, and information systems and technologies.

Major products include Virginia-class nuclear-powered submarine and Ohio class replacement, Arleigh Burke-class Aegis, Abrams M1A2 tank, Stryker eight-wheeled assault vehicle, medium-caliber munitions and gun systems, tactical and strategic mission systems.